Site Mobile Navigation

Share a Car, Risk Your Insurance

Shelby Thomas Clark, the founder of RelayRides, in San Francisco. His company has venture capital backing from Google and General Motors.Credit
Annie Tritt for The New York Times

At first glance, the idea of person-to-person car sharing appears to be the perfect solution to any number of problems.

People with idle cars (and most cars are idle most of the time) can make some money by renting them out to others who need a car sometimes but not often enough to own one. At some point, the world would ultimately need fewer cars and places to park them. It feels greener, and sharing is polite and all that.

But then the grown-ups show up, in the form of insurance companies. I called them this week in the wake of an announcement by RelayRides, a company with venture capital backing from both Google Ventures and General Motors, that it was taking its car-sharing service national.

And the grown-ups are not pleased. They want you to know that RelayRides insurance won’t be adequate in the event of a catastrophic accident and that your own insurance company may take away your insurance if it even hears that you are lending your car to someone in exchange for a few dollars an hour.

RelayRides is one of several car-sharing services to arrive on the scene in recent years. Getaround is another start-up, as are JustShareIt and Wheelz, a company that the car-sharing giant Zipcar invested in last month.

They’re all part of a larger “collaborative consumption” movement that has captured the imagination of a growing number of civic-minded, Web-addicted people who want to both save some money and use a bit less of the world’s resources. This includes home-sharing services like Airbnb, office-sharing services like Loosecubes and general sharing sites like NeighborGoods and Rentabilities.

The car-sharing services allow you, in effect, to turn your personal car into a Zipcar and rent it out by the hour or the day. You set the price, and the intermediary service lists your car online, connects you with people who want to rent it and takes a cut of the fee. Renters use a smart card to open your locks and get to the key, or you can exchange the key in person. G.M.’s investment in RelayRides holds out the promise of G.M.’s OnStar service opening the car for you, too.

For all of this to work, there are a few mental hurdles that car owners need to clear besides generalized fear of strangers and whatever cooties they leave on the steering wheel. Are they safe drivers? (Car-sharing services generally check driving records.) Will someone try to steal my car? (Yes, they will, if it’s expensive enough and the car-sharing company lacks proper controls; this problem has already put one company out of business.)

But the biggest challenge is insurance. Here’s the basic problem: Car insurance companies generally will not cover a claim that results from you putting your personal vehicle into commercial use, say by running a taxi service on the side — or making yourself into a one-person Hertz. RelayRides is well aware of this and provides $1 million of liability coverage in the event that a driver kills or maims somebody else while using your car. This is intended to fill the gap in coverage created by the fact that your own insurance company would refuse to pay this claim if the victim came after you.

This raises questions about three potential situations.

First, if some sort of catastrophic accident results in a claim of more than $1 million, what happens then? The answer is that you could be responsible for paying it. The odds of an injury this horrid and a legal judgment that blames you for renting your car to someone who crashes it are extremely low. I laid out the long odds in a column last year about Zipcar’s insurance coverage for renters (I link to it in the online version of this column.)

Only you can be the judge of how uncomfortable this makes you.

Second, do the rules change if you haven’t been taking good care of your car and that contributes to an accident? RelayRides’s terms of service seem to protect the company here, since it “disclaims” any “warranty” for “fitness for a particular purpose.” Meanwhile, a law in Oregon that relates to insurance coverage for car sharing quite specifically gives car-sharing companies the right to go after vehicle owners who engage in “material misrepresentation in the maintenance of the vehicle.”

RelayRides and its general counsel counter with two points. First, they say that language elsewhere in the company’s terms supersedes the fitness disclaimer. Second, the Oregon statute and its presumably high bar for “material misrepresentation” aside, RelayRides’ insurance broker, Bill Curtis, makes the following pledge: “I’m willing to raise my hand and say, ‘Yes,’ to the question of whether the owner will have protection in the event that they are sued and the allegation is that the car wasn’t maintained,” he said.

Third, there’s the question of what your insurance company thinks about all of this. I had a hard time finding out, frankly. Geico wouldn’t respond to any of my requests for comment.

An industry group, the Insurance Information Institute, meanwhile, is not pleased. “If the ‘renter’ were involved in an accident, most likely the insurer would non-renew or maybe even rescind the auto policy,” Loretta Worters, its spokeswoman, said in an e-mailed statement. Translation: If someone wrecks your car and injures someone and a lawyer tries to reel in your insurer as well as the car-sharing company’s insurer, your insurer may take away your coverage.

RelayRides takes exception with this, given that the word “rescind” could make people think that insurance companies would take away coverage retroactively. “It’s ridiculous,” Mr. Curtis said.

USAA, which has always gotten high marks for customer service, takes an even sterner approach than the institute. I’m a USAA customer myself, and I asked the company what would happen if I or others called and confessed that we’d signed up for RelayRides.

“We would inform them that participating in such a program will generally result in non-renewal,” Roger Wildermuth, a USAA spokesman, said in an e-mail message.

Allstate took a similar tack. “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle,” said Kevin Smith, a company spokesman. “And by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.”

Not every insurer responded this way. A Progressive spokesman, Jeff Sibel, said that while there were certain risks that would cause the company to cancel coverage on the spot if it found out about them, car sharing was not one of them “at this time.”

Meanwhile, at least three states (California, Oregon and Washington) have passed laws that generally prohibit insurance companies from dropping your coverage simply because you’re renting your car out via a car-sharing service.

I wish I knew which way the wind was ultimately blowing on this, but of the other seven major insurers I approached for comment, all either declined to talk at all or declined to squarely address this non-renewal question.

Their general wariness doesn’t surprise industry watchers, though. “The easiest answer for an insurance company is no,” said Sunil Paul, a venture capitalist who helped get the California law passed and has flirted with entering the car-sharing business. “There is no downside to no. Their knee-jerk reaction is why we need laws like the one in California.”

Or it’s simply an effort to sell more insurance. After all, fewer cars on the road with more people sharing them means fewer sales of personal policies.

But none of this leaves consumers with a clear sense of what to do. If you call your insurance company and ask for permission to rent out your car, as some of my colleagues did this week, the people you talk to may tell you that you’re nuts to even consider this, which is indeed what we heard.

To RelayRides, however, dutifully doing what some ignorant frontline agent tells you to do is to stand against innovative companies and progressive values.

“The insurance industry has already demonstrated acceptance of peer-to-peer cars sharing through their support of car-sharing legislation in three states,” the company said in a statement.

“Insurers also regularly deal with exclusions, for example, for part-time commercial purposes such as pizza delivery,” the statement continued. “Since our founding almost two years ago, we’ve been operating in Massachusetts without car-sharing legislation and without any problems. Given that we provide insurance for the rental period, we do not anticipate any problems for car owners. As with any new service, we work closely with all organizations to ensure that the best interests of all parties are protected.” I asked both Google and G.M. for comment, and neither offered one.

I, for one, am glad RelayRides is out there taking the bullets. Their idea is a good one, and I’d consider participating myself, but I’m also not about to willingly defy my insurance company.